WHILE Top Glove Corp Bhd can boast of high dividend yield and improved sentiment arising from the eventual sale ban lift by the US authorities, these prospects appear to have been largely factored in at this juncture.
For starters, production by the world’s largest glove maker is currently running at an utilisation rate of 30% amid the enhanced movement control order (EMCO) that was implemented in Selangor, according to UOB Kay Hian Research.
“This is down from 60% during the MCO (movement control order),” noted analyst Philip Wong in a company update following a recent conference call with Top Glove’s management.
“The management estimates that 50% of global capacity has been curtailed by the MCO.”
Meanwhile, the research house envisages Top Glove’s average selling price (ASP) downtrend to likely continue once full production resumes. Its ASPs currently stand at US$60 and US$41/1,000 pieces for nitrile and latex gloves respectively.
“They remain within the 5% to 10% month-on-month (mom) decline range. The uptick in hospitalisation cases in developed countries is not expected to result in higher ASPs,” projected UOB Kay Hian Research.
“However, stalled production or sub-optimal utilisation rates are expected to temporarily stall the ASP decline for now.
“Going forward, we expect fully normalised ASPs by 2023. Inventory levels in developed markets appear to have stocked to pre-COVID-19 levels at close to 50-60 days.”
On the bright side, although the path to the revocation of the withhold release orders (WRO) remains uncertain at this juncture, there is nothing outstanding on the matter since Top Glove has fully resolved its 11 indicators of forced labour.
“The US Customs and Border Protection (US CBP) last contacted Top Glove over its WRO last week,” revealed UOB Kay Hian Research while expecting the glove maker to be re-included into the three ESG FTSE4Good Index series (Emerging Markets, ASEAN 5 and Bursa Malaysia) during the upcoming December review.
All-in-all, the research house maintained its “hold” stance on Top Glove with an unchanged target price of RM4.10 given the derived dividend from the trimmed earnings is minimal to its target price.
“Given the extended outbreak of COVID-19 and that the corresponding downtime has been well beyond our expectations, we trim our FY2021 earnings by 8%,” suggested UOB Kay Hian Research.
“For every extension of the EMCO in Klang (Selangor), we estimate the downtime impact to earnings is 1.4%.”
At the close of today’s mid-day trading, Top Glove was up 16 sen or 4.26% to RM3.92 with 13.63 million shares traded, thus valuing the company at RM32.17 bil. – July 15, 2021
